Understanding Token Streaming and Vesting Protocols
Aug 6, 2024
Building a successful crypto project requires more than just innovative technology or a great idea; it needs a well-aligned team, committed investors, and a supportive community. Ensuring long-term commitment and preventing premature token sell-offs are critical for the stability and growth of any project. This is where vesting schedules come into play.
Introduction
Building a successful crypto project requires more than just innovative technology or a great idea; it needs a well-aligned team, committed investors, and a supportive community. Ensuring long-term commitment and preventing premature token sell-offs are critical for the stability and growth of any project. This is where vesting schedules come into play.
Basics of Token Vesting
Token vesting is the process where a beneficiary earns tokens based on predetermined conditions, usually time-based. At the start, the beneficiary is promised a certain number of tokens, known as a token grant. The company retains ownership of these tokens until vesting conditions are met. As conditions are satisfied, portions of the grant are released to the beneficiary, with full ownership achieved upon meeting all conditions.
Example: A project grants tokens to a team member with a 4-year vesting schedule. The beneficiary earns 25% of the token grant each year, becoming fully vested after 4 years.
Why Token Vesting is Important:
Token vesting is crucial for aligning the interests of founders, team members, investors, and the community. By ensuring that tokens are distributed over time, vesting helps to:
Retain Talent: Encourages team members to stay and contribute to the project's long-term success.
Prevent Market Dumping: Reduces the likelihood of sudden sell-offs that can destabilize the token's market value.
Align Incentives: Ensures that all parties work towards the project's best interests over the long term.
Integrating Token Streaming into Vesting Schedules:
Some vesting protocols, like TokenOps, have introduced streaming protocols into their vesting schedules. Why? Token streaming offers several advantages that enhance the traditional vesting process.
Basics of Token Streaming
The new field of real-time finance allows tokens to be continuously streamed between wallets. The volume of tokens transferred depends on how long the flow is open, like water through a tap. Token streaming is a genuinely new way of doing finance that is enabled by blockchain technology; it is an exciting new primitive that does not exist in traditional finance.
How Can You Integrate Token Streaming into Vesting Schedules
Combining token streaming with vesting schedules offers several advantages, such as increased efficiency, transparency, and flexibility. By integrating these protocols, projects can automate the vesting process, reduce administrative overhead, and ensure timely token distribution.
Types of Token Streaming Models
Closed-ended Streams
Closed-ended streams have a fixed deposit amount and duration. Once the stream is created, specific start and end times are recorded on the blockchain.
How Closed-ended Streams Work:
Fixed Deposit: The sender deposits a predefined amount of tokens into the smart contract at the beginning of the stream.
Fixed Duration: The stream has a specific start and end time, creating a fixed duration for the streaming process.
Incremental Earnings: The recipient earns tokens incrementally over the duration of the stream, with the amount increasing continuously until the end date.
Cancellation: The sender can cancel the stream at any time before the end date, recovering the remaining unstreamed tokens.
Pros:
Autonomy: No off-chain components are required to maintain the streams
Autopilot: The sender does not need to monitor and top up their streams continuously.
Peace of Mind: Closed-ended streams can be non-cancelable, ensuring that the recipient will receive the full deposit over time.
Cons:
Capital Lockup: The sender needs to deposit a significant amount of tokens upfront, which can be a substantial commitment.
Discontinuation: Multiple streams must be created if the sender wishes to continue payments after the initial stream ends.
Example: Alice deposits 3,000 USDC into a smart contract to stream payments to Bob over a month. Bob earns USDC incrementally each second until the end of the month. If Alice cancels the stream mid-month, she recovers the remaining unstreamed tokens.
Open-ended Streaming
Open-ended streams have no fixed end time or deposit amount. The sender sets a payment rate per second, and the stream continues until canceled or funds run out.
How Open-ended Streams Work:
Flexible Deposit: The sender can deposit any amount of tokens into the streaming account.
No End Time: The stream continues indefinitely until the sender cancels it or the funds are depleted.
Continuous Earnings: The recipient earns tokens at a continuous rate based on the predefined payment rate.
Top-up: The sender can add funds to the streaming account at any time to keep the stream active.
Debt Tracking: Some protocols keep track of debt if the sender runs out of funds, allowing for the repayment of the debt later.
Pros:
Capital Efficiency: There is no need for a large upfront deposit, allowing for more flexible fund management.
Continuation: Only one stream needs to be created for ongoing payments, reducing administrative overhead.
Flexibility: The sender can adjust the streaming rate or top up the stream as needed.
Cons:
Management Overhead: The sender needs to monitor the stream to avoid liquidation or accumulating debt.
Infrastructure Risk: Off-chain components may be required to ensure the stream's integrity, especially with wrapped tokens.
Example: Alice starts an open-ended stream to send 100 USDC/day to Bob. She tops up her account with 500 USDC and starts the stream. Bob earns approximately 4.16 USDC/hour. Alice can add more funds to continue the stream, and she can cancel the stream at any time.
Setting Up Your Token Vesting Schedule with TokenOps
TokenOps offers a robust and flexible approach to token vesting, allowing projects to easily establish and manage their vesting schedules. The platform integrates with streaming protocols, providing the dual benefits of traditional vesting and real-time token flow.
Pick a Smart Contract:
Selecting the appropriate smart contract is crucial and is the first step in the setup process. TokenOps’s suite of smart contracts caters to a diverse range of vesting requirements and blockchain environments, including:
Time-Lock Contracts: Ideal for vesting that's based on a fixed schedule. Once the predetermined period has passed, the tokens are released. This straightforward method is best for scenarios where the vesting terms are simple and do not necessitate frequent adjustments.
Sablier (Closed-ended):
Sablier Protocol is a collection of persistent, non-upgradeable smart contracts that together create a protocol which facilitates streaming of ERC-20 assets on Ethereum and other EVM blockchains. Sablier was first launched in 2019 with its V1 on Ethereum mainnet, which was received with warm enthusiasm by the Ethereum community. Even Vitalik Buterin praised it on Twitter. Sablier offers a range of different streaming curves and an airdrop solution, the airstreams, that combine Merkle roots with Sablier streams. Other features include NFT transferability, which allows streams to be wrapped in ERC-721 tokens making them tradable on NFT marketplaces like OpenSea and Rarible. This ensures the stream's flexibility and utility across the DeFi ecosystem.
Type: Closed-ended
Characteristics:
Fixed deposit and duration: Users deposit a predefined amount of tokens into a smart contract at the beginning of the stream.
Incremental earnings: Tokens are streamed incrementally over a set period, allowing recipients to earn tokens continuously.
Cancellation: Allows recovery of unstreamed tokens if the stream is canceled before completion.
Airstreams: Combines Merkle roots with Sablier streams for efficient airdrop solutions.
NFT Transferability: Allows streams to be wrapped in ERC-721 tokens, making them tradable on NFT marketplaces.
Superfluid (Open-ended):
Superfluid is a revolutionary asset streaming and distribution protocol that introduces the Super Token, an extension to the ERC-20 standard, enabling continuous and automated value transfer. Superfluid supports both money streaming and distributions, offering programmable, composable, and modular token transfers. It enables DAOs and crypto-native businesses to implement subscriptions, salaries, vesting, and rewards efficiently. Super Tokens track real-time balances and handle dynamic balance adjustments automatically, ensuring seamless and gas-efficient transactions.
Type: Open-ended
Characteristics:
Continuous token streaming: Tokens are streamed continuously with real-time balance updates.
Money streaming: Continuous transfer of tokens from a sender to a receiver at a defined per-second rate.
Distributions: Scalable one-to-many fund transfer method, allowing for efficient and automated distribution of funds.
Super Tokens: Extend ERC-20 functionalities with dynamic balances and automatic cash flows.
No capital lockup: All inflows and outflows are netted in real-time without consuming gas.
Programmable and modular: Supports advanced DeFi interactions and programmable token flows.
Hedgey (Closed-ended):
Hedgey provides on-chain, programmatic token releases to distribute tokens to teams, contributors, investors, and communities. Hedgey combines token streams and periodic release schedules with administrative controls like revocability and optional governance rights. Key features include customizable cliffs, backdated start dates, and flexible vesting schedules. It supports a wide range of networks and tokens, ensuring secure and trustless distribution. Hedgey’s system provides a robust solution for projects that need intricate vesting schedules and the ability to manage them effectively.
Type: Closed-ended
Characteristics:
Customizable streams and schedules: Supports linear and periodic unlock strategies, with customizable cliff dates and start dates.
Administrative controls: Includes revocability, optional governance rights, and the ability to transfer vesting plans.
Supported networks: Compatible with Ethereum, Polygon, Avalanche, Base, Mantle, Harmony, Fantom, Gnosis Chain, Celo, Boba, Arbitrum One, Optimism, EVMOS, Binance Smart Chain, zkSync, and OkEx Chain.
Supported tokens: Any standard ERC-20 token without a burn or tax per transaction.
Security: Audited by Consensys Diligence.
LlamaPay (Open-ended):
LlamaPay is a multi-chain protocol that allows you to automate transactions and stream them by the second. The recipients can withdraw these funds at any time, eliminating the need for manual transactions. Features include a fast UI, gas efficiency, multi-chain support, and the ability to top up all streams in one operation. LlamaPay also handles debt efficiently, ensuring streams continue even if the balance is temporarily depleted. It's particularly suitable for payroll, allowing continuous and flexible payments.
Type: Open-ended
Characteristics:
Continuous payments: Automates transactions and streams them by the second, allowing recipients to withdraw funds at any time.
Gas efficient: Deploying a LlamaPay stream is significantly cheaper than competitors.
Multi-chain support: Available on all EVM chains with contracts sharing the same address across chains.
Flexible deposits: No need to deposit all the money at the start of the stream, and supports topping up streams in one operation.
Debt management: Introduces a debt feature to ensure streams continue even if the balance is temporarily depleted.
Security: Open source and verified contracts, with no big precision errors.
Custom Contracts:
For vesting needs that are out of the ordinary and demand a custom solution, TokenOps can facilitate the integration and management of bespoke smart contracts.
Design Your Vesting Schedule:
After selecting the smart contract that fits your project's requirements, you’ll design the vesting schedule. Determine the total duration, whether a cliff period is required, and the frequency of distributions.
Launch and Manage:
Deploy your vesting schedule with TokenOps to activate your non-custodial smart contract. After deployment, your contract operates independently, giving you full control and ownership of your tokens without further involvement from TokenOps. You can then monitor the vesting process through their intuitive dashboard, ensuring everything runs according to plan.
Stay Informed:
TokenOps's alert system keeps you updated on vesting events. This feature is invaluable for staying informed and ensuring the vesting schedule is followed meticulously.
Conclusion
Integrating token streaming protocols into your vesting schedule enhances efficiency, transparency, and flexibility. TokenOps offers a comprehensive solution with robust smart contracts and seamless API integrations, making it easier than ever to manage token distribution. With features like customizable vesting schedules and real-time streaming integration, TokenOps stands out as a leader in token lifecycle management. By leveraging TokenOps, you can ensure a fair, predictable, and secure token distribution, aligning with the goals of long-term success and community trust.
